Would You Like to Play Russian Roulette with Molycorp’s Stock?

With shares of Molycorp (NYSE:MCP) trading at around $10.70 is MCP an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Molycorp is suddenly on everyone’s radar. Apparently, it’s the hot stock right now. Molycorp is an industrial and minerals company with a focus on rare earth elements. Rare-earth oxides have value because of their importance to clean energy.

A lot of news has come out for Molycorp. Mountain Pass Mine is expected to show a Phase One production rate of 19,050 metric tons per year. Earnings are expected to increase up to 20 percent over the next five years. Revenue is expected to increase 54.20 percent this year and 52.90 percent next year.

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If you were to stop reading now, then you might be sold on the bullish side of the story, but there is a lot more going on here.

If you’re not familiar with the story, it’s basically a matter of short interest vs. insider buying. Short interest recently climbed to over 60 percent, which is rarely seen for even the most hated stocks in existence. The reason for this burst in short interest was because of an SEC investigation announcement with a focus on the accuracy of previous disclosures. The stock had been hammered since that announcement, but then insiders stepped in and began buying up stock at a rapid rate. Over the past six months, over seven million shares have been purchased. The insiders at Molycorp were correct the first time around when they sold tons of shares between $50 and $51. Will they be correct again? Let’s take a look at some numbers, which can help remove all the hype and help paint a clearer picture.